Can I Claim AIA on Solar Panels? UK Tax Treatment 2026
Honest answer + the longer story behind the question.
60-second answer
Yes — solar panels qualify for the Annual Investment Allowance (AIA). Solar PV systems are classified as “plant and machinery” under the Capital Allowances Act 2001 and qualify for AIA at 100% in year 1 of installation. The AIA cap is £1 million per accounting period — so the first £1m of solar PV capex is fully deductible against corporation tax in the year of install.
How AIA works for a solar PV install
If your company spends £500,000 on a 500 kW factory solar PV system in financial year 2026/27:
- The full £500,000 is deducted from your taxable profit in 2026/27 (assuming you have at least £500k of profit to deduct against)
- At the 25% main corporation tax rate, that’s a £125,000 cash tax saving in year 1
- The system enters your books at £0 net tax-written-down value
- If you sell or scrap the system later, sale proceeds are taxable as a balancing charge
Worked AIA relief by system size
Commercial rooftop solar typically lands at £700–£1,000 per kWp installed. The table below assumes £850/kWp and a 25% main corporation tax rate — every system here sits comfortably under the £1m AIA cap, so 100% of the capex is deductible in year 1. Tax saved is simply the capex multiplied by your CT rate.
| System size | Indicative capex (@ £850/kWp) | AIA claimed (year 1) | Tax saved @ 25% CT | Net post-tax cost |
|---|---|---|---|---|
| 50 kW | £42,500 | £42,500 | £10,625 | £31,875 |
| 150 kW | £127,500 | £127,500 | £31,875 | £95,625 |
| 500 kW | £425,000 | £425,000 | £106,250 | £318,750 |
Figures are illustrative — actual relief depends on your installed price, your taxable profit in the year (AIA can only reduce profit to nil, not create a loss carry-back unless other rules apply), and your company’s marginal CT rate (19% small-profits rate up to £50k profit, tapering to 25% above £250k). For a fuller treatment including capex breakdowns and the balancing-charge mechanics, see our capital allowances factory solar guide.
AIA vs full expensing — key distinction
Solar panels do NOT qualify for full expensing (the new permanent 100% first-year allowance for “main pool” assets introduced in Spring Budget 2023). Solar PV is classified as a “special rate pool” asset (alongside long-life and integral features) and full expensing only applies to main-pool assets. The correct route for solar PV is AIA, which delivers the same 100% first-year deduction up to the £1m cap.
Above £1m — the 50% First Year Allowance
If your solar capex exceeds the £1m AIA cap (e.g. a 2 MW install at £1.4m), the excess qualifies for the 50% First Year Allowance (50% FYA) on special rate pool assets — which was made permanent in Autumn Budget 2023. So a £1.4m install would get: £1m at 100% AIA + £400k at 50% FYA + £200k at 6% writing down allowance per year thereafter. Effective post-tax cost ~£1.05m on a £1.4m install.
The table below shows how the three reliefs stack for a £1.4m install. Solar PV is a special-rate pool asset, so the residual balance after the 50% FYA is written down at the special-rate 6% reducing-balance WDA — not the 18% main-pool rate. There is no “full expensing” route for solar (that 100% permanent FYA is main-pool only).
| Relief | Applies to | Year-1 deduction | On £1.4m install | Tax saved yr 1 @ 25% |
|---|---|---|---|---|
| AIA (100%) | First £1m of qualifying capex | 100% of the £1m | £1,000,000 | £250,000 |
| 50% FYA | Special-rate spend above the AIA cap | 50% of the £400k excess | £200,000 | £50,000 |
| 6% WDA (special rate) | Remaining £200k balance, each year | 6% reducing balance | £12,000 (yr 1) | £3,000 (yr 1) |
Combined, that’s roughly £303,000 of corporation tax saved in year 1 on a £1.4m system, with the £188k WDA balance unwinding at 6% a year thereafter. Order matters: always allocate AIA to the special-rate (solar) spend first, because special-rate assets otherwise only attract the slow 6% WDA — using AIA elsewhere on faster-depreciating main-pool kit would waste relief.
Asset finance and PPAs — tax treatment
If you finance the system via an operating lease or PPA, the system is owned by the third party — you don’t claim AIA. Instead, the kWh you buy from the system are an operating expense, fully deductible. If you finance via a hire purchase / lease-to-own structure, the system is treated as your asset for tax purposes from day 1, so AIA does apply.
How to claim AIA on your solar install
AIA is claimed via the company’s annual corporation tax return (CT600) for the accounting period in which the asset was first brought into use. Your accountant handles this routinely — we provide an AIA-eligible cost breakdown in the project handover pack so they can claim accurately. Most clients see the cash tax saving land within 9–15 months of installation, depending on tax-payment timing.
AIA on solar batteries & inverters
The AIA claim isn’t limited to the panels themselves. The whole functioning system — PV modules, mounting and roof-fixing systems, inverters, isolators and the system cabling — counts as a single item of plant and machinery and qualifies for AIA at 100% (within the £1m cap). Installation labour and commissioning costs that bring the asset into use are capitalised into the same pool and are equally eligible.
Battery storage installed alongside the solar array is also treated as plant and machinery and qualifies for AIA. A standalone commercial battery (no solar) is treated the same way for capital allowances purposes. As with the panels, batteries and inverters fall into the special-rate pool — so where capex exceeds the £1m AIA cap the excess attracts the 50% FYA then 6% WDA, exactly as the table above shows. None of it qualifies for “full expensing”, which is reserved for main-pool assets.
A practical point: inverters are typically replaced once at around year 10–12. That replacement is itself fresh qualifying expenditure and can claim AIA again in the year it’s incurred — a useful second bite of relief over the system’s 25–30 year life. See the capital allowances factory solar guide for how to split a project invoice so your accountant captures every eligible line.
Frequently asked questions
Can I claim AIA on solar panels if my company made a loss?
AIA reduces your taxable profit, so if you have no profit in the year there is nothing for it to offset and it can create or increase a trading loss. That loss can then be carried forward against future profits, or in some cases carried back — so the relief isn’t lost, it’s deferred. Your accountant will model whether claiming the full AIA in year 1 or disclaiming part of it (leaving the balance in the pool for future WDAs) gives the better outcome.
Is the AIA £1m cap per project or per year?
It’s a single £1m allowance per accounting period (currently a permanent £1m limit), shared across all qualifying plant and machinery the company buys that year — not just solar. If you’re also buying machinery or vehicles, those compete for the same £1m. Spread a large project across two accounting periods and you potentially access two years’ worth of cap, though phasing must be commercially genuine.
Do solar panels qualify for full expensing instead of AIA?
No. Solar PV is a special-rate-pool asset, and full expensing (the permanent 100% first-year allowance from Spring Budget 2023) applies only to main-pool assets. The correct — and equally generous — route for solar is AIA, which gives the same 100% year-1 deduction up to the £1m cap. Above the cap, solar uses the 50% FYA, not full expensing.
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